Synapse Victims Get $46 Million Repayment From CFPB

The Consumer Financial Protection Bureau (CFPB) announced the payment from its Civil Penalty Nov. 28, though it came to light late last week in reports from Bloomberg Law and then FinTech Business Weekly.

As the latter report noted, the $46 million figure — $46,248,291 to be exact — may not be the total of what depositors are owed, and it’s not clear how the CFPB arrived at this number.

During the Synapse bankruptcy case, Chapter 11 Trustee Jelena McWilliams, repeatedly placed the “shortfall” in customer funds at between $65 million and $95 million, while the CFPB has projected a shortfall of $60 million and $90 million.

PYMNTS has contacted the CFPB for comment but has not yet gotten a reply.

Before its collapse, Synapse connected other FinTech companies with banks, helping those startups store their customers’ funds. At its high point, the company was managing billions of dollars, and when it imploded last year, thousands of people were locked out of their accounts.

Consumers were unable to use their debit cards, withdraw or transfer money, pay bills or receive essential deposits, such as wages and salaries. Many of these customers reported severe hardships, such as not being unable to afford food, cover their rent or mortgages, pay for medical care or other crucial bills.

In its complaint, the CFPB alleged that Synapse failed to keep adequate records of consumers’ funds and to make sure the records matched those held by its partner banks, “causing consumers to lose access to their funds.”

The suit also alleged that a breakdown in Synapse’s recordkeeping and fund management led to financial instability and hardship for thousands of consumers, underlining the need for accurate tracking and reconciliation of consumer funds within the FinTech landscape.

The collapse has led to criminal investigations, as well as civil complaints from some of Synapse’s FinTech partners, and a regulatory investigation by two former executives by the Financial Industry Regulatory Authority (FINRA).

Synapse has accused its chief bank partner, Evolve Bank and Trust, of mishandling customer funds, while Evolve has contended the blame rests with Synapse.

Speaking with PYMNTS earlier this year, QED Investors Partner Amias Gerety said the case threatened to make the FinTech ecosystem appear risky. He stressed that this uncertainty could discourage investors and FinTechs alike, hindering important innovation in financial services.